Potash importers brace for prolonged price rally after sanctions on Belarus



* Prices for potash, a crucial crop nutrient, are at 13-year high

* U.S. sanctions on Belarus exporter may inflate prices further

* Reduced input of potash could worsen global food inflation

* Canada can increase potash supply to partly offset the damage

By Polina Devitt, Rajendra Jadhav and Roberto Samora

MOSCOW, Dec 21 (Reuters) - Global potash prices are set for an extended rally after the United States imposed sanctions on major supplier Belarus Potash Company (BPC), piling more pressure on farmers and consumers already facing rocketing costs and a global economy navigating rising food inflation.

Prices of the fertiliser, which plays a vital role in crop health, were already at 13-year highs before the U.S. move on Dec. 2 and are expected to rise further, potentially curbing growth of soybean sowing area in Brazil, the world's biggest supplier, analysts said.

A pause in the increase of the planted area in Brazil would follow several years of growth and support soybean prices further.

Sanctions on BPC would make the world more dependent on other suppliers such as Canada's Nutrien Ltd NTR.TO , the world's largest potash producer.

The company has idled potash capacity that it could bring back to the market if needed, a spokesperson for Nutrien told Reuters.

Nutrien's shares have risen 6.6% since the BPC sanctions were announced, and hit a record high last week.

BPC did not reply to a request from Reuters for comment. Another major supplier, Russia's Uralkali URKA.MM , declined to comment.

BPC is the export arm of Belaruskali, the world's second largest potash producer. The U.S. black-listed Belaruskali and added BPC to its sanctions list as the West escalated punitive action against Belarus President Alexander Lukashenko. Potash exports are a key foreign currency earner for Minsk.

Washington gave BPC's clients - which include India, China and Brazil - until April 1 to wind down their business with it. U.S. sanctions will prevent BPC from accessing dollar-based financial services, making it difficult to trade on international markets.

After the sanctions were imposed, BPC said it would work within existing legal frameworks, but did not elaborate.

Prices for other fertilisers such as urea and phosphate have also surged this year as record natural gas and coal prices triggered output cuts in the sector.

Reduced fertiliser input could lead to lower harvest yields at a time when food commodity prices are at 10-year peaks and food inflation is a major issue across the globe.

IMPACT ON GLOBAL POTASH PRICES

Global spot prices for potash are at 13-year highs around $650 per tonne after a spike in crop prices and a demand recovery this year.

The record price for potash was set in 2008 when deals were signed at around $800 per tonne, said VTB Capital analyst Elena Sakhnova.

In Brazil, spot potash prices could rise to $900-950 per tonne in the first quarter of 2022 from $800 per tonne now, Marcelo Mello, director of the StoneX fertiliser desk in Brazil, told Reuters. They have jumped more than 230% since January.

Potash is needed for growing many crops including soybeans, rice, corn, fruits, vegetables, palm oil and wheat.

It improves crop resistance to diseases, droughts and promotes higher crop yields. It cannot be replaced with phosphate or nitrogen-based fertilisers.

India's potash consumption and imports may fall if potash prices rise further due to the sanctions on BPC, an industry official in India said.

BPC typically agrees annual supply contracts with India with the most recent deal signed in January.

"We are trying to resolve the issue or at least find some temporary solution," another senior industry official in India told Reuters.

China sources 20% of its potash imports from Belarus. Prices in the world's largest consumer are also high, despite the recent release of some of China's potash reserve.

"Potash supply ultimately remains tight with imports still limited and port inventories falling," Humphrey Knight, senior potash analyst at CRU consultancy, said about China.

The ability of BPC to supply customers could also be hampered by logistics with landlocked Belarus relying heavily on Lithuania's Klaipeda port to export potash, he added.

Russia, which remains Belarus' ally Link does not have enough spare port capacity to handle BPC's 12.5 million tonnes a year.

Lithuania continues to transport Belarus potash by rail to its Baltic port for now under previously signed contract and pre-payment for December and part of January.

However, public pressure on state firms to comply with the U.S. sanctions is rising in Vilnius, one of Europe's most vocal critics of human rights abuses in Belarus. The United States is a strategic partner of Lithuania.
Reporting by Polina Devitt in Moscow, Rajendra Jadhav in Mumbai, Rod Nickel in Winnipeg, Emily Chow in Beijing, Roberto Samora in Sao Paulo and Andrius Sytas in Vilnus; writing by Polina Devitt; editing by David Evans

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